Hollande Strives to Overcome French Technology Death Valley

French business history is strewn with such examples of missed opportunities. From the Internet-precursor Minitel to Francois Mizzi’s touchscreen patents in the 1980s, France has repeatedly failed to turn ideas and research into money-making global products, leaving others to ride away with the prize. Photographer: Jeff Pachoud/AFP via Getty Images

June 5 (Bloomberg) -- In 1973, Frenchman Francois Gernelle
built the world’s first micro-computer. In the decades after,
France looked on as International Business Machines Corp. and
Apple Inc. spawned a multi-trillion dollar industry around it.

French business history is strewn with such examples of
missed opportunities. From the Internet-precursor Minitel to
Francois Mizzi’s touchscreen patents in the 1980s, France has
repeatedly failed to turn ideas and research into money-making
global products, leaving others to ride away with the prize.

The European Union’s largest producer of math, science and
technology graduates needs to get out of “the death valley
between what’s developed in a lab and its future as a successful
product or company,” said Louis Gallois, former head of Airbus
parent European Aeronautic Defence and Space Co. and now
France’s competitiveness czar.

Building on a decade-long effort, President Francois
Hollande’s government is seeking to put in place plans to
squeeze more out of the country’s innovations and image. The
latest effort to end Europe’s second-largest economy’s recession
and reverse record joblessness is a state-commissioned report
dubbed “Brand France” that will lay out by the end of June
ways to wring more from the nation’s research, patents and other
intangible assets.

“France has research labs with Nobel prize winners, strong
brands, museums; what it needs is to figure out how to cash in
by turning it all into jobs, growth and startups,” said
Christian Nguyen, managing partner of Marks & Clerk, which
advises companies and governments on intellectual property.

‘Great Assets’

The record so far has been far from stellar.

Take France’s largest carmaker PSA Peugeot Citroen SA. Its
distinction as the country’s most innovative company -- topping
the list of patents for the last five years with everything from
“hybrid air” engine technology to “magicwash” for cleaner
windshields -- did little to prevent it from posting a record 5
billion-euro ($6.5 billion) loss last year.

Gernelle’s microprocessor-powered micro-computer, dubbed
Micral, wasn’t any different. R2E, where he worked, was taken
over by Groupe Bull, which relegated the machine to niche
markets like toll booths. Efforts to elbow into the PC mass-market later failed, making Bull, which chalked up losses for
years, a bit player.

“The French invented the micro-computer, but they didn’t
know how to market it,” said Tomasz Michalski, an economics
professor at HEC business school near Paris. “France has great
assets. It just doesn’t use them efficiently.”

French Hurdles

Inventions are encouraged with events such as Concours
Lepine, a century-old annual contest held last month in Paris.
The fair generated early versions of the flatiron, the ballpoint
pen and the artificial heart, alongside quirky gadgets to help
do everything from scratch backs to pick up dog poop.

Where France fails is in taking a good idea and building a
business around it, said Nguyen.

“Mentalities still need to evolve,” he said. “It’s time
to let go of the idea that science for science is better than
science for money.”

Efforts have been made over the last decade to get state-backed research entities and industry to work together. Most
public labs, universities and engineering schools have
structures to manage patents or incubators to help startups.

Still, “to turn an idea into money, you need entrepreneurs
and you need investors who’ll put in money to back a new
technology and develop it into a product,” said Vincent
Bouatou, deputy head of research and technology at Morpho, a
unit of aeronautics and defense group Safran SA.

Squeezing More

France’s private equity association Afic last year said the
lack of capital available to finance small and medium-sized
companies had become an “emergency.” The amount of such
capital in 2012 in France was $6.5 billion, less than half the
$17.6 billion in the U.K. and a fraction of the $126.3 billion
in the U.S.

Investment in France is less attractive because of high
labor-related costs and conditions and taxes that are both
elevated and constantly shifting, according to a report
published today by Ernst & Young.

After speaking out against finance during his election
campaign and targeting wealthy taxpayers with a so-called
“millionaire tax,” Socialist President Hollande more recently
has attempted to win over the country’s entrepreneurial classes
as part of a move to boost France’s competitiveness.

In April, he said he’ll lower the capital-gains tax to
“compensate investment and risk taking” by entrepreneurs.

Strategic Assets

Gallois’ competitiveness plan includes making state funds
available to monetize research through bodies such as Societes
d’acceleration du Transfert de Technologies and Consortiums de
Valorisation Thematiques. As France seeks ways out of recession
and a 14-year-high unemployment rate, getting more bang for each
research buck is among items high up on its list.

The “Brand France” report, ordered in January, is partly a
brainchild of Industry Minister Arnaud Montebourg, who last year
pushed the “Made in France” campaign, posing before the French
flag to promote local products. More recently, he blocked the
sale of “strategic” video site Dailymotion, a Youtube rival,
to the U.S.’s Yahoo! Inc.

The report seeks to list how France can use its intangible
assets -- image, history, brands and culture -- to boost exports
and narrow the near-record trade gap.

Licensing patents to companies abroad is one way to
increase exports, said Beatrix de Russe, an executive vice
president for intellectual property at Technicolor SA.

Licensing Patents

The company, one of France’s most-active on patent filing,
has 220 people in Paris dissecting gadgets from technology
giants like Apple, Samsung Electronics Co. and HTC Corp. to spot
infringements and strike new licensing deals.

“Licensing is important in our company’s finances -- it’s
how we pay for more research and continue to innovate,” de
Russe said. “What’s less obvious is it’s also important for
France. It’s reflected in the trade balance.”

The company, which in 1939 invented the process for color
movies used in “The Wizard of Oz” and now sells special-effects software to film studios, last year had 512 million
euros in licensing revenue.

The licensing unit, its most profitable, helped the company
navigate a restructuring and survive six straight years of net
losses as it refocused business from hardware to services.

So when France needed someone to head a sovereign fund for
licensing patents in 2011, it turned to Jean-Charles Hourcade, a
former research and patents chief at Technicolor.

State Driven

The French public-financed initiative, the first of its kind
in Europe, has drawn interest from neighbors Germany, Spain and
Italy, as well as the European Commission, Hourcade said.

“The idea of state-defined industrial policy strikes a
chord in France,” said Hourcade, who heads the France Brevets
investment fund. “The high-speed TGV train, nuclear power, the
Minitel... They all came from state investments. The state is
adapting its strategy to a more digital world, but the thinking
behind it is the same.”

When Alcatel-Lucent put its patents up as collateral in
December for a loan underwritten by Credit Suisse Group AG and
Goldman Sachs Group Inc., the French state tried to step in.

Although the 2 billion-euro funding deal went through, the
state is keeping a wary eye on the 30,000 patents, including for
voice recognition and video conferencing, valued at 5 billion
euros in an analysis by Global IP Law Group.

‘Common Language’

The government has set strict financial goals and expects
returns for the state patents fund, Hourcade said. His objective
of return on investment has been set at 8 percent.

France Telecom SA, which holds 7,500 patents in
telecommunications, software and Internet technology, has
generated 300 million euros from licensing in the past 10 years.

“Intellectual property is the common language for
partnerships, setting industry standards, sharing technology and
allowing analysts and investors to measure your ability to
innovate,” said Luc Savage, who heads the company’s
intellectual property and licensing business.

Former France Telecom CEO Thierry Breton, who was finance
minister between 2005 and 2007, was instrumental in creating an
agency to help value brands -- including institutions such as
the Louvre museum and Sorbonne University -- and patents.

“The intangible economy isn’t only patents; it’s also
software, drawing, design, culture, brands, luxury... It’s
creativity in all its forms,” said Gilles Grapinet, who served
as an adviser to Breton at the ministry. “There’s no measure
for that, but France has some of the world’s best.”

Creating Value

France has shown it can turn a local invention into a
global success. Chips developed by Frenchman Roland Moreno and
patented in 1974, are now used in bank cards and mobile phones.
They’ve made Gemalto SA the world’s biggest maker of smart
cards, with sales of 2.2 billion euros in 2012.

Such cases are few and far between.

“We need entrepreneurs -- people who can take an
innovation and turn it into a marketable product,” said Yann
Magnan, managing director at Duff & Phelps, which helps clients
evaluate intangible assets. “Whatever the innovation, if
there’s no one to make something out of it, it becomes the worst
case scenario: a total absence of value.”